Panel advised against hasty response to US tax overhaul

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BOSTON (AP) — Massachusetts lawmakers were urged Tuesday to avoid hasty or knee-jerk reactions to the new federal tax reform law, with state officials and experts arguing it could take years to fully understand its ramifications.

The Legislature’s Revenue Committee held an informational hearing as a first step in determining whether new state laws or regulations are needed in response to the federal changes, as several other states are actively considering.

“I feel confident in saying that Massachusetts has not been put in an emergency situation by federal tax reform,” said Michael Heffernan, state secretary of administration and finance. “There is time for a thoughtful process.”

Like other high-income states, taxpayers in Massachusetts stand to take a hit from a new $10,000 cap on deductions for state and local tax payments, with those in higher income tax brackets or who own more expensive homes feeling the biggest impact.

The Massachusetts Taxpayers Foundation estimates that about a third of the state’s taxpayers claim the deduction on state and local taxes, with the average deduction totaling about $17,000 in the 2015 tax year. The group estimates the $10,000 cap will result in the aggregate loss of about $7 billion in deductions.

Policymakers in several other high-tax states, including California, New Jersey, New York and Illinois, have floated suggestions for softening the blow. In California, a top lawmaker has proposed allowing people to make charitable donations to the state in lieu of income taxes.

The impact of the cap on state and local taxes might be less harsh in Massachusetts, Heffernan said, because the state has a flat income tax of 5.1 percent — compared to states that have top rates of 9 percent or higher — and will be offset in some cases by the increases in standard deductions and child tax credits in the new law.

States looking for quick “workarounds” to the federal law are likely to encounter political or even constitutional obstacles, said Max Behlke, budget and tax director for the National Conference of State Legislatures.

Noah Berger, president of the liberal-leaning Massachusetts Budget and Policy Center, argued the new law is skewed heavily in favor of corporations and the wealthy, most of whom will enjoy significant tax savings even after accounting for the reduced deduction for state and local taxes.

Berger suggested that state taxes on the wealthy be raised to offset cuts in federal spending that could ensue as a result of the $1.5 trillion tax overhaul that became law last month.

The group supports a constitutional amendment, likely to go before voters in November, that would impose a 4 percent surtax on people with annual incomes of at least $1 million.

“Can we find ways to raise taxes on higher income folks and invest that money into things that mater to all of us?” he asked. “Obviously there are choices out there.”

State officials estimated that about 80 percent of taxpayers would benefit at least initially from the federal tax changes, and the state itself was likely to see short-term revenue boosts from capital gains and provisions that allow corporations to repatriate foreign assets.

The Democratic co-chairs of the revenue committee, Rep. Jay Kaufman and Sen. Michael Brady, said the panel had no preconceived notions for addressing the new law.

“We want to make sure we have the facts and not the fiction,” said Brady.